Bluetooth Smart, AKA Bluetooth Low Energy (BTLE), is a new modulation mode and link-layer packet format defined in Bluetooth 4.0. A new class of low-power devices and high-end smartphones are already on the market using this protocol. Applications include everything from fitness devices to wireless door locks. The Good: Bluetooth Smart is well-designed and good at what it does. We explain its workings from the PHY layer (raw RF) all the way to the application layer. The Bad: Bluetooth Smart's key exchange is weak. We will perform a live demonstration of sniffing and recovering encryption keys using open source tools we developed. The Ugly: A passive eavesdropper can decrypt all communications with a sniffed encryption key using our tools. The Fix: We implement Elliptic Curve Diffie-Hellman to exchange a key in-band. This backward-compatible fix renders the protocol secure against passive eavesdroppers.